Exchange Rate Unification: President Tinubu Poisoned Chalice

From two dramatic back-to-back policy measures, the government of President Bola Tinubu is now engaged in a life and death struggle to bring order back into the national economic firmament. The economy is challenged and it behooves all those who love Nigeria to speak, and contribute ideas on how this government can return to rhyme and rhythm.

This president means well and he needs help. Nigerians who participated in the the discussions of the September 1985/86 structural adjustment programme (SAP) and played a part in its subsequent implementation would wonder why President Tinubu is taking this country through the same tortuous path, a second time. The fuel subsidy removal , which took the price of fuel from N165 per to N589 per litre, announced at the May 29, 2023, presidential inauguration ceremony was one pain the country would have been able to walk through.

Then on June 14, 2023, the president presumably directed that the official exchange rate previously  systematically determined by the Central Bank of Nigeria (CBN), be merged with the parallel market rate (famously called the black market) to eliminate the arbitrage in the market. As at June 13, 2023, the CBN rate was N471/$ and the parallel market rate was N765/; an arbitrage of N287/$. On June 14, a staggering 31% devaluation occurred and the official CBN rate moved up to N620/$ but the black market remained at N765. On June 15, 2023, the CBN official rate inched up to N657.5/$ and the black market went up to N791/$.

The two rates were actually never unified. The argument of government was that the extra N294 generated from every dollar sale at the date of unification would now accrue to the federal government for distribution. In the process the government hoped to eliminate official corruption and private gains from the foreign exchange market. And this action was taken without a critical public input.

It took the government a few weeks to learn that once it subjects itself to the dictates of the market forces, the naira price of foreign exchange was out of its control. Thus in the year 2023 the Naira was devalued by a total of 98%. As we speak, the CBN foreign exchange rate on January 30, 2024,  is now about N893.46/$ and the parallel market rate is N1,445/$.

The arbitrage opportunity which was N287/$ on June 13, 2023, has now rise to N551/$ on January 30, 2023. Therefore, the government gained nothing from the exchange rate unification. The real outcome of the exchange rate unification is the unintended consequence of subjecting Nigerians to untold economic torture and agony. As we speak, most Nigerian professionals in the age group of 25 to 55 years are heading out of the country as economic migrants because of the disastrous effect of the exchange rate unification exercise.

The Nigerian economy is in dead waters. The government was wrongly advised.  Right now government officials are confused and the men and women in the national and state assemblies are busy building up personal financial reserves ready to flee. Nigerians are hungry and jobless. Factory closures,  increased misery for the poor, brigandage and banditry, official corruption and hopelessness have become our lots.

 In his 450-page autobiography titled “Powered by Poverty”, in chapters 11 and 12, the author x-rayed the consequences of SAP on the Nigerian economy and explained how the systematic de-industrialization of Nigeria was seamlessly achieved by the Breton Woods institutions who were totally displeased with the 1972 and 1977 indigenization and enterprise promotion decrees.

Unfortunately, much of the crude oil that should today produce the foreign exchange earnings to ameliorate the current pains is being stolen in huge quantities and the managers of the NNPCL, led by Mr. Mele Kyari are being celebrated, feted, and accorded the privilege of an Aso Rock Villa pass. Even achieving the miserable 2.3mbpd OPEC crude oil quota for Nigeria is way beyond the reach of the oil industry.

No government begins to implement the two critical components of SAP – subsidy removal and huge exchange rate devaluation, without a reference document as we had in 1986 on the IMF/World Bank structural adjustment programme; copies are still available.

No government takes on these two measures without a ready access to huge foreign exchange reserves that will provide adequate resources to be able to stand up to the market speculators that are attracted in these circumstances. Also lacking is a consistent export facilitation programme that would have begun to produce results within 90 days of the commencement of the June 14 measure.

Without an easy draw-down facility of not less than US$20 billion, Nigeria may not recover from this economic pain. And you can only imagine the labour crisis ahead! Having come to this crossroad, the next thing is to ask what are the options available? Are the federal government economic advisers ready to learn from experience? Is the government sincere on alleviating the emergent poverty in the polity?

Knowing the heart of President Bola Tinubu and his progressive NADECO credentials, it is easy to classify the president as a patriot. Having devalued the currency on June 14, 2023, by fiat, it will be suicidal to revalue it by fiat and yet there is no way this economy can survive with the present naira exchange rate which amounts to an obvious currency undervaluation. Any exchange rate of over N550/$ will be unbearable for this economy.

Because of the twin measures of subsidy withdrawal and exchange rate unification, a huge pool of naira funding accrues every month to the federation account. So much funds are now allocated to state governments and the governors just party.

This government should know that the huge increase in funds available to state governments via the monthly statutory allocation mechanism ends up in the pocket of state governors. As yet, there is no mechanism to monitor the governors to prevent this unending calamity. The experience of bankers is that at the end of the month, the black market for dollars is unusually busy.

The demand for US dollars escalates and it it has been so for decades. Working with the accountant-general of the state, the governors take out the security vote and a sizeable portion of the allocation for the state through any bureau de change (BDC) of choice and their foreign account is updated. That is why most governors travel lout at the beginning of the month to confirm the deposits that have been credited to their accounts.

 The recent increase in allocation to states has increased the quantity of funds stolen by state governors via this channel. It was a mistake for president Tinubu to have moved much of the funds accruing from the subsidy withdrawal and the devaluation into the pool of funds for monthly allocation. The Tinubu  government should have used the opportunity to set up an implementation agency named the presidential infrastructure task force to implement choice programmes in emergency road construction and rehabilitation, health and educational intervention, water supply, low income housing projects and social structures that are lacking in the country.

 Unfortunately, the current increased statutory allocation to state governments has increased executive greed and has worsened our collective poverty. It this agency is established the black market will be starved of funds and the exchange rate will improve very quickly in 60 days. The expectation is that the new agency will not loot this fund as an accounting and control system can be designed to stem excessive leakages.  It is recommended that the government should reflect on this proposal.

If ever there were good reasons for keeping Mele Kyari, in office as NNPCL GMD, since May 29, 2023, those reasons must be long gone. Crude oil theft rose to the level of a national embarrassment under his management. The country cannot even produce to meet the OPEC allocated quota and therefore cannot earn enough foreign exchange to give strength to the economy.

Mallam Kyari’s top three management levels in the NNPCL should be sacked today and a new executive body be reconstituted. There had always been corruption in the NNPC but what has now metamorphosed into massive crude oil theft is an existential threat confronting Nigeria. The recent decision by the federal government directing NNPCL to ask crude oil buyers to pay the proceeds of crude oil sales directly into the designated account in CBN is a step in the right direction.

It will help solve a lingering problem whether crude oil is being physically stolen to the extent feared or whether the expected crude oil sale is made but the proceeds paid into two accounts – 30% into the federal government account under NNPC and 70% paid into the cabal’s account. The day of reckoning Is almost here. While implementing the personnel and control changes in the NNPCL, government must begin to search for international business espionage experts who had retired from the American FBI (Federal Bureau of Investigation) as contract employees of government to oversee the determined efforts to put a stop to the theft of crude oil. These experts have received a special training that the federal government will find useful.

The current half-hearted efforts to halt crude oil theft by releasing in the night, vessels caught with stolen crude oil in the day, and harassing locals with 20 drums of crude oil being used for local refining business will never help this situation. We are currently adopting a face-saving measure devoid of effectiveness. It is laughable and hypocritical. A crude oil production figure of 1.5mbpd, out of an OPEC quota of approximately 2.3mbpd is an insult on the Nigerian reformist president and a vindication of the need to immediately relieve Malam Mele Kyari of his undeserved current position. If Nigeria begins to meet its current OPEC quota, the dramatic effect of the currently mortgaged crude oil stock on the nation’s earnings will be obviated. There are too many dirty tricks in the channels of the management of NNPCL.

The general security problem in Nigeria has to be addressed. The armed forces, police, civil defence officials and the Nigerian hunters/forest guards association are highly commended for the steps taken so far to address the national security meltdown. The time for the commencement of the state police system has come. The national assembly members must be forced to authorise the state police system. The insecurity of today is way beyond the capacity of our centralised federal policing system.

The federal governement also requires the services of foreign mercenaries to work side-by-side with our local security forces and the armed forces to eliminate the resistant bandits and criminals in Kaduna, Zamfara, Plateau, Benue, Taraba, Niger,  Imo, Anambra, and in the forests of the western states. A kidnapping and terrorist tribunal should be established and a trial period of six months be set down as the period of arrest, trial and conviction or discharge for terrorists, bandits, killer herdsmen and mass murderers. The death penalty without the option of fine or imprisonment must be the punishment.

In the 1970s the death penalty and public execution by firing squad for convicted armed robbers was able to tame the crime of armed robbery.  This time death penalty, by hanging or electric chair, should await convicted bandits, killer-herdsmen, killer cattle rustlers, boko haram terrerorists and cross border killers along the fringes of northern Nigerian borders and other such killers in Nigeria. The execution of convicts must be carried out within 90 days of conviction and whatever appeals that may arise must be determined within the 180 days deadline.

A drastic ailment requires a drastic cure. The question of rehabilitating boko haram convicts as repentant offenders and absorbing them into the Nigerian armed forces and the police force is a detestable practice and an effort to undermine the sovereignty of Nigeria.

If the security situation improves national food production efforts will be boosted. Farmers can go back to the farms and herdsmen will no longer be emboldened to walk their herds of cattle over huge farmlands wrecking pain and destruction on hundreds of millions of naira private investments. In parallel with this effort, the much discussed system of ranching in selected states of the federation should commence.

Indeed the federal government can build experimental ranches in five northern states as an example for others to follow. The annual value of the Nigerian cattle economy runs into tens of billions of dollars. With a secured land access to farm lands, produce buyers can go freely into the forests and farms to purchase palm kernel, rubber, cotton, grains, ginger, cocoa, rubber and others and process for export.

The commodity boards can now return and export business will be promoted. It is also important for the Nigerian federal ministry of finance using the NEXIM Bank as its channel to seek an export stimulation loan from the African Development Bank (ADB). Foreign exchange earnings from exports will help the foreign exchange market and gradually reduce the current market volatility.

The commodity boards of those past years helped in creating the modern Nigerian state. The cocoa board in Ibadan, Palm produce board in Calabar, groundnut board in Kano, Cotton board in Funtua and Rubber board in Iyanomo were the vehicles for Nigerian prosperity before and during the crude oil years of glory. Their subsequent sale and destruction has had an unsavoury effect on the Nigerian agricultural sector and our foreign exchange earnings.

Similarly, the ability of the terrorists to prevent federal access to mining sites in this country is preposterous. The action of the federal government in all these areas has been tepid. There has been no sufficiently effective action in any positive direction since May 29, 2023.  Even the much touted efforts in the Nigerian mining sector is held captive.

The federal government is advised to immediately implement a measure for both the federal and state governments to open up their ministries, departments and agencies (MDAs) for mass recruitment of qualified personnel. The administration of President Ibrahim Babangida achieved a feat in 1986/87 when he threw open the doors of government for the mass recruitment of qualified graduates in the country.

The reason was that the SAP had brought untold hardship to Nigerians at the time and he saw the need to bring succour and relief into Nigerian homes. President Tinubu is at a similar period in his presidency. In the federal and state state civil service and in the MDAs, hundreds of thousands of vacancies abound. These vacancies have developed from staff death, retirement, resignations, ill-health, dismissals, and the flight to economic safety called the “JAPA” phenomenon. On this note the infamous Oronsaye report should be shredded because it is not only outdated, it sought to achieve no useful purpose from the very beginning.

An emergency meeting of the national economic council should hold and the federal government and all state governors and the FCT should be mandated to take an inventory of vacancies existing in their public service. A directive should then go from the presidency for these vacancies to be filled within 90 days.

Furthermore, in all government primary and secondary schools with an appalling student/teacher ratio, teachers should be immediately recruited to fill the vacancies. Jobs should be created to enable President Tinubu to neutralise this poisoned chalice. Let us act before it is too late (Part 2 follows on new jobs and exchange rate revaluation strategy).

* Chief Omokhodion, author of, “Powered by Poverty”, is the immediate past Pro-Chancellor/Council Chairman, Ambrose Alli University, Ekpoma.